Forbes India 15th Anniversary Special

SBI cuts interest rates for most of its savings accounts deposit customers

Stock closes up 4.46%; move will help bank lower its cost of funds; other banks could follow suit with similar action

Salil Panchal
Published: Jul 31, 2017 04:11:30 AM IST
Updated: Jul 31, 2017 04:12:16 PM IST

SBI cuts interest rates for most of its savings accounts deposit customers
Image: Mansi Thapliyal / Reuters
State Bank of India [SBI] on Monday announced a two-tier structure for its savings bank accounts, which indicated that most of its depositors will now earn a lower rate than earlier.

According to a statement issued on Monday, SBI said that “a balance above Rs 1 crore would earn an interest of 4 percent per annum but for balances below Rs 1 crore, the rate would be down to 3.5 percent. Till July 31, all savings bank deposits earned the four percent interest.

This type of cut would impact SBI favourably, an analyst with a foreign brokerage firm said, as it would bring down the cost of funds for the bank and in turn, help boost net interest margins (NIM) for the bank.

This Monday cut will also enable SBI to maintain its marginal cost of fund based lending rate (MCLR), a new benchmark lending rate.

The total deposits for SBI and its associates were at Rs 25.8 lakh crore, of which savings account deposits accounted for Rs 9.4 lakh crore, according to data from the bank relating to March 31, 2017.

Shares of SBI jumped as much as 4.71 percent to a day’s high of Rs 313.3 after the announcement. The stock finally closed at Rs 312.55, up 4.46 percent against a previous close of Rs 299.2 apiece.

“The decline in the rate of inflation and high real interest rates are the primary considerations warranting a revision in the rate of interest on saving bank deposits,” the bank said in its statement.

SBI’s Rajnish Kumar, managing director (National Banking Group), added: “The real interest rates were very high, there was no choice for the bank [but to lower rates]. The option for us was to either raise the MCLR or cut rates on savings accounts.

But we thought that if MCLR was raised, it would impact a large segment of borrowers in the agriculture, SMR, retail and affordable housing segments, pushing up their costs and EMIs. So we decided against this.” Kumar told media at a conference call later Monday.

From March 2003 to May 2011, the interest rate on SBI savings bank accounts was 3.5 percent and from June 2011, the rate was at 4 percent.

Kumar said that the bank will take a call on further cuts in deposit and lending rates after the Reserve Bank of India [RBI] policy meeting scheduled for August 2 (Wednesday). The SBI move is likely to push other banks to also lower their rates for such deposits. But some banks are likely to take a decision after the RBI meeting, where a majority of economists believe that the RBI could lower interest rates by 25 basis points.